UK’s 50p top rate slammed

I am City A.M's deputy editor, having joined the newsroom in late 2010 as an economics reporter.

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Julian Harris

ONLY three other European Union states have a higher top rate of income tax than the UK, consultancy group KPMG said today.

Outside the EU, just Japan and the small Caribbean island of Aruba have a higher top rate than the UK, out of 96 countries surveyed by the group.

Western Europe remains the region with the highest average level of top rate income tax in the world.

Across the European Union as a whole, the average top rate is lower, at 37 per cent. While the UK’s 50p per £1 rate is uncompetitive compared to most of its European neighbours, rivals for high-earning talent increasingly lie in other corners of the world, the survey said.

“Truly globally mobile international executives move around the world and tend not to stay in one region,” commented KPMG’s Marc Burrows. “They are not weighing up London against Dublin or Geneva but looking at Hong Kong, Singapore, Dubai, all around the globe.”

In Asia the top rate of income tax is 23 per cent, the calculations show.

Hong Kong and Singapore -- two favourite destinations for Western workers looking to move East – have top tax rates of 15 per cent and 20 per cent respectively.

Many governments, such as the UK, have been reluctant to reduce the highest band of income tax during a period of attempted deficit reduction, Burrows said. “However, while governments may not move, individuals, particularly higher earners, continue to do so and this should not be overlooked when addressing deficit concerns.”

And the UK’s 50 per cent top rate could be causing further harm to the economy, according to Alex Henderson, tax partner at PwC.

“While every person who decides to leave the UK is a drop in the potential tax base for the country, we never see the people and economic activity that simply never comes here,” Henderson explained.

Yet taxation is not the only factor affecting people’s choice of location, Henderson added. “There are many other factors that people take into account such as infrastructure, time zone and ease of doing business. There are limits to what can be done but we are hoping that the government will continue to focus on making the UK an attractive country for new economic activity,” he said.